Why investors need the best research tools for Spread Betting

By Richard Leader, a member of the DigitalLook.com Investment Club who has been putting a few of the research tools through their paces on DigitalLook.com.
This article is taken from the Investor's Guide to Spread Betting. Download your free copy here.

Why do investors need the best research tools for spread betting? Well why wouldn’t you? Spread betting is not the same as taking a punt on the horses – it has its place in a balanced portfolio of wealth management. You wouldn’t select a pension, buy a house or invest in an ISA based on gut instinct alone so why should spread betting be any different?

There’s a wealth of different research tools and data on DigitalLook.com, from broker recommendations to streaming charts, from all the latest news to full fundamental data, and Level 2, DigitalLook.com provides a highly integrated research centre.

Stock Screener

Let’s start with the Stock Screener – a powerful tool that enables you to enter your search criteria and find matching stocks. It’s the daddy of all our research tools! The Screener enables us to look for stocks using a vast array of fundamental and technical data.

As an example, we plugged-in the data for a typical Value Investing screen (looking for a positive price change and EPS growth and for low P/E ratios and PEG), and found 9 companies currently meeting these tough criteria.

We can then investigate these 9 companies in more detail and start making some decisions about whether they would make good long term investments. Or I can also look at whether this style of stock selection is suitable for a shorter term horizon. To do this, we’re going to test our criteria.

Back Tester

The Back Test facility takes our criteria and shows how the strategy would have worked had we applied it in the past. It assumes that every month we would have bought every stock that met our criteria and sold those that no longer did.

The test shows our strategy would have turned over a nifty 75% gain in the last 5 years.

But this means buying and selling 36 stocks a month on average – not very practical using a traditional broker.

However, with spread betting it’s looking like a more decent strategy. In the last 60 months we would have had 38 winning months and 22 losing months. Even if we had stop loss and stop gains set up to be exactly equal, we still would have made a decent profit. But in reality we would have applied further analysis to run our gains and cut our losses, so could have done even better than the 75% gain. Of course, as all the best investment guides say, past performance does not guarantee future results!

Like most investors with busy day jobs, we don’t have time to watch the screen all day to determine the exact moment to trade. Instead, we place the trades we want with sensible stop losses, guaranteed stop losses and stop gains to lock in profits or cut any losses quickly.

Email alerts

We can save this Screen so we can see the results any time. This also gives us the flexibility to tweak the criteria if needs be. Next, we set up an email alert so when new companies trigger our criteria we can place a trade, or if companies no longer meet our criteria so we can take a view as to whether we need to exit.

We can also set-up a Trigger Alert around the Buy or Sell price of any given stock.

Finally we’ll monitor our performance and if it isn’t living up to expectation we’ll tweak the strategy and re-test it until we find one that works better for us.

The screener, back tester and alerts form just one part of the research centre. There’s a whole other section on visual tools – incorporating heat maps, bar charts, scatter plots and our favourite, the market map.

Market Maps

Market maps show what’s happening in two different dimensions – here, the size of the box shows the average size of company by sector and the colour shows the share price performance over the last 30 days (you can define these criteria yourself). Not a good day on the markets as it happens. But not to worry – it shows us opportunities to go short.

By clicking on a sector, we get to see the same data for the constituent companies – so let’s look at Oil & Gas – a badly performing group of companies today (shown in dark red):

In this example, BP is showing a high negative trend over the last 30 days – we can enter a trade directly from here, or we can click in the box to read more about BP and see all its data.

We can change all the data points directly from here – we can look at broker recommendations, trade volumes or indeed some 200 different criteria.

We could go on about using the whole suite of tools on DigitalLook.com but really it boils down to two approaches:

  • Applying your strategy to a screening tool and looking for opportunities with specific characteristics
  • Using the visual tools to browse the market and look for shorter term trends you can take advantage of with the low cost of spread betting

Personally we like to do a bit of both. There are opportunities for profit in any market conditions and we like to think that with the right tools you can find those opportunities faster than the other guy or gal.

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Terms & Conditions

Please remember that Spread Betting is a leveraged product and carries a high level of risk to your capital. It is possible to incur losses that exceed your initial investment. This product may not be suitable for all investors, therefore ensure you fully understand the risks involved and seek independent advice if necessary. You and CMC Markets, and not Digital Look, will be the counterparties to each Transaction. CMC Markets (i) executes transactions with you solely as principal and (ii) deals on an execution only basis - therefore CMC Markets is not under any obligation to provide any advice on the merits of any transaction. CMC Spreadbet Plc is authorised and regulated by the Financial Services Authority. *Tax laws can change.

Digital Look is an Appointed Representative of CMC Spreadbet Plc.

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